In many countries, the government pays almost identical nominal wages to workers living in regions with notableeconomic disparities. By developing a two-region general equilibrium model with endogenous migration and searchfrictions in the labour market, I study the differences in terms of unemployment, real wages, and welfare between a regional wage bargaining process and a national one in the public sector. Adopting the latter makes residents in the poorer region better off and residents of the richer region worse off. Private sector employment decreases in the poorer region and it increases in the richer one. Under some conditions, the unemployment rate in the poorer region soars. Simulation results also show that a regional bargaining scheme may increase inequality.

Item Type: MPRA Paper -

Original Title: The Welfare and Employment Effects of Centralized Public Sector Wage Bargaining-